VA loans are the greatest benefit offered to Veterans.
Streamline refinancing is a way to lower the rate on your VA loan without a ton of paperwork.
But who qualifies for a VA streamline refinance and when is a good time to get one?
In this article we answer these questions and more.
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What is a VA Streamline Refinance?
A VA refinance is a streamlined refinancing available to Vets with a VA loan. Less paperwork is required fast-tracking the refinance process.
This is possible because the lender relies on the information submitted with the original (existing) mortgage application and draws up the refinance agreement based on those stats. Therefore, the lender is less likely to carry out comprehensive credit checks, thorough asset and earnings verification, or fresh appraisal.
What is the VA Streamline Refinance Loan Program all about?
It all started in 1776, when Congress provided pensions for disabled soldiers. In 1944, the VA loan program was established. Today, the Veterans Benefits Administration (VBA), one of the three units of the Department of Veterans Affairs, oversees the VA Home Loans program.
The program is extensive and is the foremost mortgage facility specifically targeted at veterans, active servicepersons, and select military spouses. Like other government-backed comprehensive mortgage programs, such as the FHA and USDA loan programs, the VA loan program offers streamline refinance mortgages to borrowers with running VA loans to reduce the burden of an outstanding mortgage.
The VA streamline refinance mortgage has other name variants. The one you would see bandied about officially is VA Interest Rate Reduction Refinance Loan, shortened as VA IRRRL.
You may just say “Earl,” since that’s how IRRL sounds like if pronounced as a word, or “VA streamline” and anyone in the mortgage business will know what you are referring to. Another synonym is “VA-to-VA” loan, since you can only use a VA streamline mortgage to refinance an existing VA mortgage.
VA Streamline Refinance Loan Requirements
Basic Service Eligibility
In general, since the IRRRL is only available for VA loan refinancing, if you have a running VA loan; chances are that your basic service eligibility for a streamline refinance mortgage is not in question.
Military spouses who obtained a VA home loan with a veteran or active-duty serviceperson, who died afterwards, are also eligible for an IRRRL.
To qualify for a VA streamline refi, you MUST be current on your existing VA mortgage payments. You MUST not have had more than one 30-day late pay within the past 12 months.
Net Tangible Benefit
One of the integral set of rules for all forms of streamline refinance mortgage is that it MUST demonstrate a “net tangible benefit” to the borrower. The VA-to-VA loan is no exception.
Lenders only offer the VA streamline when it is clear that it provides substantial savings to the military homeowner that supersedes any costs related to refinancing.
In this regard, it is a compulsory requirement that the new VA monthly mortgage payment be lower than the original VA monthly mortgage payment prior to the refinance.
However, VA regulations entertain exceptions for streamline borrowers who intend to refinance an ARM (adjustable rate mortgage) to an FRM (fixed rate mortgage) and/or who intend to refinance a 30-year term to a 15-year term.
It is important to note that, in the ARM to FRM refinance scenario, the interest rate may increase. In addition, the monthly mortgage payment may increase after a 30-year to 15-year term refinance.
The occupancy requirement for a VA streamline refinance is simple—the property you intend to refinance MUST be a property in which you have lived in previously.
This is clearly different from the VA Purchase Mortgage occupancy requirement that you MUST live in the home you intend to purchase with a VA purchase loan. With the IRRRL, you only need have stayed in the property at some point, not necessarily at the moment you intend to refinance.
The reason for this is the slightly technical VA loan eligibility requirement. Everyone who would typically be eligible for a VA loan has a basic VA loan entitlement.
When you hadn’t sought a VA loan it was unused. The status changes to ‘used’ when you close a VA loan. The status also changes to ‘used’ when you substitute your eligibility for that of a VA-eligible seller after assuming a VA loan on a property.
Now, when you refinance, the lender will reuse the entitlement you originally used for your existing VA loan. To demonstrate prior use of your entitlement (or simply put, show that you had stayed in the property prior to the refinance), you only need to take your Certificate of Eligibility (COE) to the lender.
You do not have to obtain a new COE, the COE used during your existing VA loan application will suffice.
VA Streamline Refinance Loan Limit
In theory, the VA does not stipulate a maximum VA IRRRL size. However, the maximum loan size differs between borrowers. This loan cap is equal to the sum of:
- The outstanding balance on the existing VA loan,
- Allowable fees,
- Closing costs (including discount points and funding fee), and
- Up to $6,000 for energy efficiency improvements
The VA often waives funding fee for:
- Veterans who receive VA compensation for a service-connected disability
- Veterans entitled to compensation for a service-connected disability who do not receive said compensation because they receive retirement or active duty pay
- Spouses of veterans who died in service or as a result of a service-connected disability.
VA IRRRL Refinance Loan Benefits
- Credit check and/or appraisal are NOT required
VA policy stipulates that credit information, underwriting, and appraisals aren’t necessary. However, many lenders would pull a credit report to confirm that you made your mortgage payments timely and in full.
That said, private approved lenders have the liberty to set their own policy as regards these requirements. As a result, a lender may require an appraisal and/or a credit report.
- Thorough employment verification and/or income verification are NOT required
Sometimes, lenders would make a quick call for verbal verification of your employment status. Usually, that’s as far as they go for employment and income verification.
Thus, you wouldn’t have to provide copies of pay stubs and W2s nor even have to source for copies of your bank statements.
- Less paperwork and faster closing times
Waiving the necessity of multiple verifications, documentations, and checks translates to reduce paperwork, and ultimately, fast closing times for a VA streamline mortgage.
- No out-of-pocket expenses
You are at liberty to roll all closing costs and fees into the new VA streamline refinance mortgage or to increase the interest rate to a level where the lender would foot the costs (called no cost refinance).
In light of this, military borrowers can access an IRRRL with “no money out of pocket.”
VA Streamline vs VA Cash-Out Refinance Loans
The major advantage a traditional refi has over a streamlined refi is the ability to get cash payout by tapping into the property’s equity.
Not to be outdone, the VA home loan program also offers VA Cash-Out Refinance loans obviously designed to offer this exclusive traditional refi cash-out advantage to military borrowers.
Although the VA cash-out refi is similar to the VA streamline refi in terms of eligibility; they have two major differences.
- The obvious difference is that while you can use the cash-out refi to get cash to cover any monetary need you have, you can only use the streamline refi for rate and mortgage payment reduction
- You can access a VA cash-out refinance mortgage even if your existing mortgage is not a VA loan (for example, USDA, FHA, or conventional loan). In contrast, you can only use a VA streamline refinance mortgage to refinance an existing VA loan.
FAQs about VA Streamline Refinance Mortgage
Is it compulsory for me to refinance my VA loan through my current lender?
Private lenders (including banks, credit unions, savings and loans institutions, and mortgage companies) provide VA home loans, while the Department of Veterans Affairs guarantees a percentage of these loans on the basis that the VA-approved private lenders abide by VA mortgage policies.
Therefore, any VA-approved private lender offering a VA streamline refi mortgage would be willing and able to refinance your VA loan. It is often a good idea to check out other VA private lenders to compare offers.
Do I qualify for a streamline refinance if I am ineligible for a lower interest rate?
The lower interest rate requirement only applies to borrowers who intend to refinance their existing FRM (fixed rate mortgage) to another FRM.
VA streamline refi policy waives the lower interest rate requirement for military borrowers moving from ARM (adjustable rate mortgage) to FRM.
Can I cash out with a VA streamline refinance loan?
In general, NO.
The VA streamline refinance mortgage is by nature only able to let you refinance to a different interest rate and/or term. Getting a cash-back using a streamline refinance is not possible.
However, there are times when there may be an overage. In addition, you may receive a small amount of money at closing or a short while after. In either case, the amount is typically less than $500.
Would I receive any cash-in-hand during closing of my VA streamline refinance loan?
At your streamline closing, the lender may give you up to $6,000 cash-in-hand. However, this money is exclusively for energy-efficiency improvements. In fact, the lender makes this payment as a reimbursement for improvements done within 90 days prior to closing.
Furthermore, some VA borrowers may get a cash disbursement of “old” escrow funds.
Is it possible to use the VA streamline refinance loan for an investment property?
This is because you do not have to stay in the property you want to refinance at the time of applying. The only requirement is that you had stayed in it at some point in the past,
Can I access a VA IRRRL if the property has a second mortgage?
However, note that the VA IRRRL only replaces the VA loan and not the second mortgage.
As a result, it is necessary for the second position lien holder to agree to subordinate the second mortgage and allow the new VA loan to replace the existing VA loan as the first mortgage.
Would I be able to qualify for VA streamline refinance if my loan is delinquent or behind?
Although, in this peculiar situation, the lender will want to ascertain that the cause of the delinquency is taken care of, and that you are both willing and able to make timely payments on the new VA streamline refinance.
Who controls the mortgage interest rate for the VA streamline refinance?
The interest rates you receive are set by the lenders you patronize and not by the Department of Veterans Affairs. The VA only guarantees the loan and set most of the rules.
What is the compatibility between the HARP program and the VA streamline refi program?
You can only use the VA streamline refi on a VA loan. Thus, having a HARP loan automatically disqualifies you from getting a VA streamline refinance.
Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.